Snapchat IPO Confusion Costing Some Investors

Some investors, it appears, are already losing money on the Snapchat IPO.

On Friday, shares of Snap Interactive dropped 10% to just over $8 mid-day Friday, reversing a huge run up in the stock price, which got as high as $9.98 at one point—a 122% jump from $4.50—since the owner of the fast growing photo sharing app filed in early February for its IPO, which is expected to be one of the market’s hottest deals in years.

Here’s the thing: Snap Interactive, the company that’s stock has soared it appears on investor interest in Snapchat, is not actually the parent company of the popular disappearing message app. That’s Snap Inc. and its shares are not traded yet, and probably won’t be for a little while, since it just filed to go public.

Snap Interactive, on the other hand, was founded in 2005 and has been public since 2006. The company, which has no actual ties to Snapchat, provides dating applications for social media websites. It also recently completed an acquisition of a video chat company, which now makes up more than half of its business. Nonetheless, the fact that Snap Interactive, like Snap Inc., is in the social media business is probably adding to the confusion.

A screen shot of Snap Interactive’s website feature one of its chatting apps.

Snap-On, also a publicly traded company that makes tools, has not seen the same investor confusion. It’s stock is up just 1.5% since Snap Inc. filed for its IPO.

Alex Harrington, the CEO of Snap Interactive, says he, like others, has noticed the peculiar run-up in his company’s stock in the past week or so. But he says he has no plans to issue a press release or make some other formal announced to address the confusion. Harrington says individuals who call his company asking about Snap Inc. are being told they have the wrong company. “An investor who does even the slightest bit of due diligence should recognize we are a different company,” says Harrington. “I have no obligation to set the record straight.”

A few months ago, though, Harrington and his company appeared to the see the possible mix-up coming, and seemed a lot more concerned about it. In October, Snap Interactive sued Snap Inc. trying to stop the later from changing its name from Snapchat, saying the rebranding would cause confusion about the ties between the two companies. Snap Interactive later dropped the suit. Harrington says the matter was resolved “on confidential terms that were acceptable to both parties.”

Still, Harrington says he’s not certain how much of the recent run-up in his company’s stock is due to the confusion. While he admits his company’s investor relations hotline has gotten a number of calls seeking info about Snap Inc., Harrington said at least some of the run up could be the result of his company’s own less publicized news.

Earlier this month, Snap Interactive regained the stock symbol back to STVI. It had been briefly been STVID following a 1-for-35 stock split. And Harrington said the extra letter in its stock symbol may have made it tough for some investors to find the company. It trades on the so-called OTC marketplace, a lesser known exchange than the larger NYSE or Nasdaq stock markets. None of that, though, seems to be stopping other investors from stumbling upon the company, incorrectly.

This isn’t the first time investors have reached for the wrong stock at the time of a hot IPO or deal. In October 2013, shares of Tweeter Home Entertainment Group, a near-bankrupt consumer electronics company, shot up nearly 700% after Twitter filed its IPO paperwork. Shares of Oculus VisionTech Inc., an anti-piracy video company, soared in 2014 after Facebook bought the unrelated but similarly named Oculus VR, the virtual reality headset company, for $2 billion.

Outside of their ties to social media, Snap Interactive and Snap have very little in common. Snap Interactive, factoring it its recent acquisition, had revenue of $22 million in the nine months ended Sept. 30, which is the latest available data. That appeared to be down slightly from the same period the year before, but Snap Interactive didn’t release similar numbers for the year before. Snap Inc.’s revenue on the other hand reached $404 million in 2016, up nearly 600% from the year before.

Snap Interactive had $5.3 million in cash as of Sept. 30. Snap Inc.’s highly anticipated IPO is expected to raise up to $3 billion in cash, some of which will go to outside investors. After the deal, Snap Inc. is likely to have a market cap of $25 billion.

Snap Interactive’s market cap on Friday hovered at a much smaller $60 million.

Update: Story was updated to reflect a clarification from Snap Interactive, and include pro-forma post acquisition numbers for the company. An earlier version of this story said that Snap Interactive has no plans to address the investor confusion. In fact, the company is talking to investors individually that contact the company, but does not plan to issue a press release.